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GBPUSD Analysis: BoE's Carney Shows Unease Over "No-Deal Brexit"

GBPUSD Analysis: BoE's Carney Shows Unease Over "No-Deal Brexit"

2018-08-03 10:33:00
Justin McQueen, Analyst
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GBPUSD Analysis and News

  • Brexit risks becoming increasingly important with BoE policy losing its potency
  • Carney states that the possibility of a no-deal Brexit is uncomfortably high

For a more in-depth analysis on Sterling, check out the Q3 Forecast for GBP/USD

BoE Monetary Policy Losing its Potency to Prop GBP

Yesterday the Bank of England increased the bank rate to 0.75%, as expected. Although the vote split had taken many by surprise with all rate setters in favour of raising the bank rate. However, following the accompanying comments and post rate decision speech by Governor Carney, the Pound fell to session lows with Brexit risks appearing to be the dominant factor for the currency.

Carney Shows Unease Over Brexit

Governor Carney highlighted his unease over Brexit risks, after stating that the possibility of a no-deal is uncomfortable high at this point, adding that the UK and EU should do all things to avoid a no-deal Brexit scenario. As a reminder, yesterday’s minutes noted that difference Brexit responses could significantly alter monetary policy. Consequently, following Carney’s slightly cautious rhetoric, GBPUSD dipped below 1.30, reaching its lowest level in 2 weeks.

Falling UK Services Growth Casts Doubts Over BoE Hike

UK Services PMI had missed expectations, having dropped to a 3-month low of 53.5 (Exp. 54.7). As such, this brings into question the reason as to why the BoE hiked, given that UK economy remains in the slow lane. IHS market noted that job creation was at the slowest pace since August 2016, which in turns suggests that the unemployment rate has potentially hit a floor. Subsequently, this suggests that faster productivity would be needed for stronger wage growth as opposed to an even tighter labour market and with business investment showing signs of dipping, wage growth may continue to underperform BoE estimates.

GBP/USD PRICE CHART: 4-Hour Time Frame (July-August 2018)

GBPUSD Analysis: BoE's Carney Shows Unease Over "No-Deal Brexit"

Chart by IG

GBPUSD continues to remain fundamentally weak. 1.30 is holding for now, despite a brief dip below. Eyes will be on the 2018 at 1.2957, which will offer support before the psychological 1.2950. A close below 1.30 would be needed to pave the way for deeper losses.

See how retail traders are positioning in GBPUSD as well as other major FX pairs on an intraday basis using the DailyFX speculative positioning data on the sentiment page.

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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